Q4 2023 Interfor Corp Earnings Call

Operator: Good morning, my name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Interfor Quarterly Analyst Conference Call. All lines have been placed on mute to prevent any background noise.

Good morning My name.

This is Jenny.

There will be a conference operator today.

At this time.

Like to welcome everyone to the <unk>.

Therefore quarterly analyst conference call.

All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. Thank you. Mr. Fillinger, you may begin your conference. Thank you, operator. And thank you everyone for joining us this morning.

After the Speakers' remarks, there will be a question and answer session if.

If you would like to ask a question. During this time Super Crestor that the number one and your telephone keypad.

If you would like to withdraw your question. Please press Star then the number two thank.

Thank you Mr. Killinger, you may begin your conference.

Thank you operator, and thank you everyone for joining us. This morning with me on the call I have Rick Pas born executive Vice President and Chief Financial Officer.

Ian Fillinger: With me on the call, I have Rick Posbon, Executive Vice President and Chief Financial Officer, and Bart Bender, Senior Vice President of Sales and Marketing. I'll start off by providing a brief recap of our quarter, make some comments on the market outlook and several strategic initiatives before passing the call to Rick and Bart. Turning to our quarter, our adjusted EBITDA was a loss of $51.4 million during a very challenging quarter that was impacted by weak pricing.

Bart Bender, our senior Vice president of sales and marketing.

I'll start off by providing a brief recap of our quarter and provide some comments on the market outlook and several strategic initiatives before passing the call to Rick and Bart.

Turning to our quarter, our adjusted EBITDA was a loss of $51 4 million during a very challenging quarter that was impacted by weak pricing to be clear current pricing is generally below industry breakeven levels, which is simply not sustainable for any extended period of time.

Ian Fillinger: To be clear, current pricing is generally below industry break-even levels, which is simply not sustainable for any extended period of time. With that being said, we have a more positive outlook for the year ahead than we did a year ago. We feel housing demand has been relatively strong in the face of rising interest rates.

But that being said we have a more positive outlook for the year ahead than we did a year ago. We feel housing demand has been relatively strong in the face of rising interest rates rates appear to have peaked and builder sentiment is improving in R&R remains steady on.

Ian Fillinger: Rates appear to have peaked, builder sentiment is improving, and R&R remains steady. On the supply side, inventories at both the producer and supply chain level are low and operating on a just-in-time basis for shipment. And continued production curtailments are anticipated from the industry, especially if current prices continue. Despite our positive outlook, we intend to manage and continue to manage the business and our balance sheet conservatively. We have reduced our 2024 capital spending from our preliminary guidance set in November to $90 million.

On the supply side inventories at both the producer and supply chain level are low and operating on it just in time basis for shipments and.

And continued production curtailments are anticipated from the industry, especially if current prices continue.

Despite our positive outlook, we intend to manage and continue to manage the business and our balance sheet conservatively.

<unk> reduced our 2024 capital spending from our preliminary guidance set in November to $90 million. We think this is a disciplined mode.

Ian Fillinger: We think this is a disciplined move. With our internal CapEx team, we're able to quickly make adjustments, providing us with flexibility and control. At the same time, we continue to make good progress on the monetization of our BC Coast tenures. These and other notable cash inflows, such as tax refunds that Rick will discuss, are expected to help bolster our financial position over the next year, even without any meaningful operating earnings, and I'll turn the call over to Rick, who will walk you through the fight. Thank you, Ian, and good morning all.

With our internal Capex team were able to quickly make adjustments, providing us with flexibility and control the.

At the same time, we continue to make good progress on the monetization of our BC coast tenures. These and other notable cash inflows such as tax refunds that Rick will discuss or expect to help bolster our financial position over the next year, even without any meaningful operating earnings.

Now I'll turn the call over to Rick who will walk you through the financials.

Thank you Ian and good morning, all please refer to cautionary language regarding forward looking information in our Q4 MD&A.

Rick Posbon: Please refer to cautionary language regarding forward-looking information in our Q4 MD&A. From a high-level perspective, Interfor's Q4 financial results reflect further weakening of lumber markets, as supply continued to outweigh demand. This weakness is evidenced by the framing lumber composite price dropping 12% quarter over quarter.

From a high level perspective, <unk> Q4 financial results reflect further weakening of lumber markets.

Supply continues to outweigh demand.

This weakening and as evidenced by the framing lumber composite price dropping 12% quarter over quarter.

Rick Posbon: Lumber prices are currently at an unsustainable level, as a significant portion of the North American lumber industry is likely generating negative EBITDA margins. I'll leave it to Bart to discuss the supply-demand fundamentals in some detail, but speaking from a macroeconomic perspective, there are encouraging signs that haven't yet translated into increased demand and higher lumber prices. Notably, the trend of moderating inflation across the North American economy now has central banks contemplating interest rate cuts in the near term. We've seen this reflected in significantly lower 30-year U.S. mortgage rates over the past three months. Lower mortgage rates will benefit housing affordability, not only in terms of reduced interest costs but also in terms of supporting an increased supply of existing homes for sale. Turning to Q4 earnings, Interfor generated an adjusted EBITDA loss of $51 million on total revenue of $786 million.

Lumber prices are currently at an unsustainable level as a significant portion of the North American lumber industry is likely generating negative EBITDA margins.

I'll leave it to Bart to discuss the supply demand fundamentals in some detail, but speaking from a macroeconomic perspective, there are encouraging signs that haven't yet translated into increased demand and higher lumber prices.

Notably the trend of moderating and placement across the North American economy, now has central bank's contemplating interest rate cuts in the near term.

We've seen this reflected in significantly lower 30 year U S mortgage rates over the past three months.

Lower mortgage rates will benefit housing affordability not only in terms of reduced interest costs, but also in terms of supporting an increased supply of existing homes for sale.

Turning to Q4 earnings and therefore generated an adjusted EBITDA loss of $51 million on total revenue of $786 million.

Rick Posbon: Compared to the previous quarter, revenue benefited from a slight 4% increase in lumber shipments, which was more than offset by a 9% decline in the average realized lumber price. On the cost side, reported production costs on the unit of lumber basis were essentially flat quarter over quarter. However, Q4 costs included a $14 million increase in the provision against inventories, whereas the prior quarter included a $3 million reduction. The net loss of $169 million in Q4 reflects several non-recurring charges, including an $85 million provision to facilitate the ongoing monetization of our coastal British Columbia operations and a $56 million charge to impair certain operating assets in the Pacific Northwest, which is driven by higher log costs and ongoing market weakness. In terms of cash flows, there was a $22 million outflow from operating activities in the quarter, as negative operating earnings were partially offset by the collection of tax refunds totaling $30 million.

Compared to the previous quarter revenue benefited from a slight 4% increase in lumber shipments, which was more than offset by a 9% decline in the average realized lumber price.

On the cost side reported production costs on the unit.

Lumber basis were essentially flat quarter over quarter.

However, Q4 costs included a $14 million increase in the provision against inventories, whereas the prior quarter included a 3 million dollar reduction.

The net loss of $169 million in Q4 reflects several nonrecurring charges.

Including an $85 million provision to facilitate the ongoing monetization of our coastal BC operations.

And a $56 million charge to impair certain operating assets in the Pacific Northwest, which was driven by higher log cost and ongoing market weakness.

In terms of cash flows there was a $22 million outflow from operating an operating activities in the quarter.

As negative operating earnings were partially offset by the collection of tax refunds totaling $30 million.

Rick Posbon: Combined with capital expenditures of $40 million in the quarter, our net debt-to-invested capital leverage ratio ended the quarter at 32.8%. Looking ahead regarding capital allocation, we're taking a conservative approach in light of the current lumber market weakness. Our primary focus over the course of 2024 will be on managing our balance sheet conservatively. In line with this focus, we have revised our expected capital expenditures for 2024 down to $90 million from $140 million previously budgeted.

Combined with capital expenditures of $40 million in the quarter, our net debt to invested capital leverage ratio ended the quarter at 32, 8%.

Looking ahead regarding capital allocation, we are taking a conservative approach in light of the current lumber market weakness our primary focus over the course of 'twenty 'twenty four will be on managing our balance sheet conservatively.

In line with this focus we have revised our expected capital expenditures for 2024 down to $90 million from $140 million previously budgeted. Additionally.

Bart Bender: Additionally, we expect the collection of tax refunds totaling $68 million and the ongoing monetization of our coastal BC forest tenures over the course of 2024 to benefit our financial leverage. To wrap up, Interfor's Q4 results reflect significant lumber market weakness, which we view as unsustainable for the industry as a whole. Fortunately, Interfor has a high-quality, diversified portfolio of operations and is well-positioned to successfully navigate through this period of supply and demand, adjusting towards a sustainable balance. That concludes my remarks. I'll now turn the call over to Bart. Thanks, Rick.

Additionally, we expect a collection of tax refunds totaling $68 million and the ongoing monetization of our coastal BC forest tenures over the course of 2024 to benefit our financial leverage.

To wrap up <unk> Q4 results reflect significant lumber market weakness, which we view as unsustainable for the industry as a whole.

Fortunately <unk> has a high quality diversified portfolio of operations and is well positioned to successfully navigate through this period of supply and demand adjusting towards a sustainable balance.

That concludes my remarks, I'll now turn the call over to Bart.

Thanks, Rick turning to our lumber markets.

Bart Bender: Turning to our lumber markets, the outlook remains uncertain for the short term and encouraging for the medium to long term. Rick covered the macroeconomic factors which bode well for lumber markets. Certainly, we feel better today about the economic situation than we did at this point in the last four or five quarters. Confidence and optimism exist with our customers and those ultimately using our products. When you look at the end-use sectors of our business, it really comes down to new home construction. Repair and remodel, the industrial and non-residential sectors have shown steady lumber demand, whereas new home construction has been variable. However, encouragingly, housing starts are showing an improvement trend, especially in single-family construction.

The outlook remains uncertain for the short term and encouraging for the medium to long term.

<unk> covered the macroeconomic factors, which bode well for lumber markets certainly we feel better today about the economic situation than we did at this point in the last four or five quarters.

Confidence and optimism exists with our customers and those ultimately using our products.

When you look at the end use sectors of our business really it comes down to new home construction and repair and remodel industrial and nonresidential sectors are showing steady to lumber demand, whereas new home construction has been variable encouragingly housing starts are showing an improvement trend, especially in single family construction.

Bart Bender: We are optimistic that the spring building season will bring greater demand for lumber. However, the exact timing of this is less certain. Last year, the spring building season was less evident until later in the spring and early in the summer.

We are optimistic that the spring building season will bring greater demand for lumber however, the exact timing of vessels lessor.

Last year the spring building season was less evident until later in the spring early summer.

At this time the volume of European imports were more significant which is not as relevant this year sales volumes have tapered off significantly.

Ian Fillinger: At this time, the volume of European imports was more significant, which is not as relevant this year as those volumes have tapered off significantly. Overall, in-market inventories remain balanced on the low end of the spectrum at today's level. Looking at the supply side of the equation, we're expecting more capacity to be idled, some of it permanently. In the medium to long term, the dynamics around housing age and inventory, household formation rates, and household balance sheets will support robust markets for lumber. I'll stop there and pass it back to you.

Overall end market inventories remain balanced on the low end of the spectrum at today's level of consumption.

Looking at the supply side of the equation, we're expecting more capacity to be idled some of it permanently.

Medium to long term the dynamics around housing aging inventory.

Hustle formation rates household balance sheets will support robust markets for lumber.

I'll stop there and pass it back to you Ian.

Okay. Thanks Bert.

So operator, we're ready to take any questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.

Operator: Okay, thanks, Bart. So operator, we're ready to take any questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touchtone.

You will hear it reach on Comped acknowledging your request questions will be taken in the order received should you wish to cancel your request. Please press the star followed by the channel.

Operator: You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the. If you are using a speakerphone, please lift the handset before pressing any button.

Any speaker phone please lift the handset before pressing.

Your first question is from <unk> from BMO capital markets. Please ask your question.

Thank you good morning, Ian Rick.

Rick embarked.

Ketan Mamtora: Your first question is from Ketan Mamtora from BMO Capital Markets. Please ask your question. Thank you. Good morning, Ian, Rick, and Bart.

Maybe first question.

You talked about pricing is unsustainable level and that is more curtailments that would be needed.

I'm curious can you talk about sort of your approach.

Ian Fillinger: Maybe the first question, you know, you talked about pricing being at an unsustainable level and that there would be more curtailments, you know, that would be needed. I'm curious, can you talk about sort of your approach to production, given market conditions right now in terms of, you know, sort of how are you managing the rate at which y'all are producing? Yeah, morning, Ketan.

To production.

Given market conditions right now in terms of sort of how are you managing.

Debate at Coachella producing.

Yes.

Yes.

Good morning, Kate.

So Ian here, so Keith we look regionally.

And mill specific.

On how each bill in region is operating.

Ian Fillinger: So Ian here. So Ketan, we look regionally and mill-specific at how each mill and region is operating. We have a scorecard that we look at every week that tracks P&L performance. And then if it's below cash costs, there's another threshold where you kind of look at what the shutdown costs would be. And then there are a lot of other factors that go into that regionally, things like, you know, full employment in the US and risks to employees or contractors. So we have a pretty robust scorecard that we review as an executive team weekly. And we've been doing this for years and years.

We have.

Scorecard that we look at every week that tracks P&L performance.

Then.

If it's below cash cost there is another threshold, where you kind of look at what the shutdown cost would be.

And then there is a lot of other factors that go into that.

Regionally with.

Things like.

Full employment in the U S.

Risks to employees or contractors, so you have a pretty robust.

Our scorecard that we review as an executive team weekly and we have been doing this for years.

In years, so it's nothing new.

Ian Fillinger: So it's nothing new for us, but a very disciplined approach to run, don't run type situations. Understandable. And so, Ian, at this point, are all of the mills running across your different regions? Are you, are they running, are any of the mills running on reduced shifts or, you know, just can you give any sort of additional color?

Forest, but.

Very disciplined.

Approach to run don't run.

Situations.

Understood.

At this point are kind of all of the men.

Running across your different regions how are you.

Are they running or any of the mezz joining on reduce it or not.

Just can you give any sort of additional <unk>.

Ian Fillinger: Yeah, I would say, Ketan, that like our competitors, we're not different in the pricing environment and demand environment. So, you know, we've been running through, you know, through the Christmas period through January fairly steady at most or all of our operations. Having said that, you know, we're in a period where, you know, with you know, if there's a weakness or extended pricing environment like we have now, we'll look at those, you know, every week. And if it's a material event, we will, for sure, be putting that out. But, you know, like we said in our opening comments, most of the industry is having a pretty tough time. And, you know, if you even look at some of the decisions, the U.S. South isn't even safe in these situations, and there are some competitors that have made some very prudent moves, and I think that's just a reminder that not all U.S. South bills are of the same quality.

Hello.

Yes, I would say that.

Like our competitors.

We're not different to the pricing environment.

The demand environment so.

We've been running through through the Christmas period through January fairly steady.

Most or all of our operations, having said that we're in a period where.

If there's a weakness or extended.

Rising environment like we have now.

We will look at those.

Every week it if it's a material.

We will for sure be putting that out but.

Yes.

We said.

Said in our opening comments most of the industry.

Yes.

Pretty tough time.

If you even look at some of the.

Decisions the U S south isn't even.

Safe in these situations and theres been some competitors that have made some very prudent moves.

And I think Thats, just a reminder.

Not all U S south builder the same quality.

Ian Fillinger: And so I think regarding our 13 mills down there, we're very confident in them. As you know, you've been on our tours down there, pretty solid assets. I think my point here is whether it's in British Columbia or Eastern Canada, the Pacific Northwest or the South, the situation that the industry has been in in 2023 hasn't been great, as you well know. Now, going forward, if you asked us a year ago how we felt about the outlook, we feel better today than we did a year ago for sure. Got it. No, that's that's a helpful context, Ian. And then there was one for Bart.

And so I think regarding our 13 mills down there.

Confident in them.

As you know you've been on our tours down there pretty solid assets. So.

I think my point here is whether it's in British Columbia or.

Eastern Canada Pacific Northwest or the South it's.

The situation that the industry has been in in 2023, Hasnt Hasnt been great as you well know.

Now going forward.

He asked this year ago, how we feel about it.

The outlook.

We feel better today than we did a year ago for sure.

Got it that's helpful context.

And then one for Bob.

Bart Bender: Bart, can you talk a little bit about what you are seeing on the repair and remodeling side in terms of, you know, kind of pull through and, and, and demand? We had existing, you know, sort of home sale data, as you see, they are at sort of multi-year lows. What are you kind of seeing in your demand, and what is your expectation for the year? Okay, so on the repair of a model site, I mean, obviously, we've got a fairly significant view through the business that we do with various customers that are targeting that segment of the marketplace. You know, I'd almost look at it in two lights.

A little bit about.

What youre seeing on the repair and remodeling side.

Toms off.

Hello through an on demand.

Existing.

Wholesale data accuracy at multiyear lows.

What are you seeing.

In your demand and what is your expectation for the year.

Yes.

Okay.

So on the repair and remodel side I mean, obviously, we've got a.

A fairly significant view.

Through our the business that were doing with various customers that are that are targeting that segment of the marketplace.

I almost look at it.

Bart Bender: One is the convenience stores, and what we're seeing from those folks has been, you know, incredibly steady business, frankly. Our programs have maintained their pace, maintained their pace throughout the year, and I can tell you, you know, so far this year, they've been the same. The other side of it is, you know, the customer base that's more focused on... you know, perhaps some of the seasonal product lines like treated wood and those types of things that would flow through, you know, the repair and remodel side of the equation. And I would say that typically, you'll see a slowdown in late Q4 and early Q1 and sort of a buildup in what ends up being a fairly robust spring season. And you know So you know, really, when you think of all the end-use sectors, Romare-Mamado is kind of a good news story. That's the one that's been very steady for us.

<unk> one is the box stores.

What we're seeing from those folks has been incredibly.

Incredibly steady business frankly, our programs have have maintained their pace.

Maintain their pace throughout the year and I can tell you so far this year.

<unk> been they have been the same.

The other side of it is.

As the customer base that is more focused on.

Perhaps some of our seasonal product lines like treated wood and those types of things that would flow through.

The repair and remodel side of the equation and I would say that typically youll see.

A slowdown in late Q4, early Q1 and sort of a buildup in.

And what ends up being a fairly robust.

Spring season.

And what we're seeing so far that I would just say is typical and that we're expecting those markets too.

To behave very similar to what they did last year. So.

Really when you think of all the end use sectors repair model is kind of a good news story. That's the one that's been been very steady.

For us.

Ian Fillinger: You know, it's the new home construction site where you see some variability. Ketan, maybe I'll just kind of build on Bart's comments. I mean, one metric that we look at in the R&R market is, What's the status of the household balance sheets? And that tends to give us an indication of the R&R market. So, very supportive of that end market, given the strong balance sheets that exist today. So I think, in summary, our expectations should be fairly consistent, Bart, with 2023, absent of, you know, some, you know, major event happening. Yeah, okay. Now that's helpful, Kalar.

It's the new home construction side that you see some variability.

Tim maybe I'll, just kind of to build on Barts comments from me one metric that we look at it in the R&R market is whats.

Whats the status of that.

The household balance sheet.

It tends to give us an indication in the R&R market.

So.

Very supportive.

Of that end market given the strong <unk>.

Balance sheets that that exist today or think in summary, our expectation should be fairly consistent part with.

2023.

Absent of some.

Major events happening.

Yes, Okay now that's helpful color I'll jump back in the queue. Good luck.

Ketan Mamtora: I'll jump back in the queue. Good luck. Thank you. Thank you. Your next question is from Matthew McCuller from RBC Capital Mortis. Please ask your question. Hi, good morning.

Thank you.

Right.

Thank you. Your next question is from Matthew Mccall <unk> from RBC capital markets. Please ask your question.

Hi, Good morning, Thanks for taking my questions first I would like to ask if you could just talk through how you would expect fiber cost to trend by operating region over the next couple of quarters and with that whether you're expecting any significant impacts from fire salvage activity as we progress through the year.

Matthew McCuller: Thanks for taking my questions. First, I'd like to ask you how you expect fiber cost to trend by operating region over the next couple of quarters. And with that, whether you're expecting any significant impacts from fire or salvage activity as we progress through the year. Yeah, so I'll take a shot at it.

Yes.

I'll take a kick at it rich jump in if you think I've missed anything but.

Ian Fillinger: Rick, jump in if you think I've missed anything, but thanks for the questions, Matt. So, you know, if we kind of go by region, we're seeing in the short term some stumpage relief in British Columbia, which is very good and, as you know, we have three mills in BC that's our total exposure in the southern part of British Columbia that is very, very competitive, so that's great there. The next region, the Pacific Northwest, we don't see any major swings up or down, so I think pretty steady In Eastern Canada, particularly in Quebec, you know, we and others are enjoying a lower log cost at this point as a result of the fire salvage going on.

Thanks for the questions Matt.

So if we kind of go by region, we're seeing in the short term.

Some stumpage relief in British Columbia, which is.

Very good.

And as you know we have three mills NBC, that's our total exposure.

In the southern part of British Columbia that Theyre very very competitive so that's great there.

The next region Pacific Northwest.

Don't see any major swings up or down so I think pretty steady.

Eastern Canada, particularly in <unk>.

Quebec.

Where we and others are.

Enjoying a lower log cost at this point as a result of the fire salvage going on.

Ian Fillinger: Our expectation now is that it's probably run its course, you know, sometime in the summertime, so just.., you know, keep that in mind. And in the US South, we're very pleased with the log cost trend and our competitive benchmarking against, you know, the average log costs in those regions. So that would pretty much cover, I guess, the puts and takes or through our platforms across North America. Great, thanks for that.

Our expectation is that's probably.

Run its course sometime in the summertime so just.

Keep that in mind and in the U S South.

We're very pleased with.

The loss cost trend.

And our competitive benchmarking against the average log cost in those regions.

Yes.

Pretty much cover I guess, the puts and takes are.

Through our platforms across North America.

Great Thanks for that.

Ian Fillinger: Maybe next, are you able to provide any color on what the moving parts are between the preliminary $140 million CAPEX budgets and the new revised $90 million budgets and maybe what your flexibility is like to bring some of those projects back if the outlook improves? I know you called out some ongoing cost inflation there. So just wanted to get your thoughts. Yeah, for sure, Matt. And, you know, you were on our tour a year or so ago down in the south also, so I'll get a little specific.

Maybe next are you able to provide any color on what the moving parts here between the preliminary $140 million capex budgets and.

The new revised $90 million budget and maybe what your flexibility is like to bring some of those projects back if the outlook improves I know you called out some ongoing cost inflation. There. So just wanted to get your thoughts.

Yeah for sure Matt.

You were on our tour.

<unk> go down in the South also so.

Get a little specific our major focus at our capital is to complete our Thomas and project.

Ian Fillinger: Our major focus in capital is to complete our Thomaston project in Georgia. That's the largest project we'll have done in the history of Interfor. And the major phase that we're working on now should be commissioning shortly, going through testing, and some startup over the next few months. So we're very excited to kind of get that one behind us.

In Georgia.

That's the largest project will will have done in the history of <unk>.

The major.

Fees that were working on now should be.

Commissioning shortly going through testing and some start up over the next.

A few months. So we're very excited to kind of get that one.

Behind us.

Ian Fillinger: The other projects, the strategic projects that, you know, we developed in 2018 for a couple of the other operations down there, we have seen labor costs go up as far as contractors go. Equipment costs have gone up, you know, lumber markets have, you know, toned down. And so we have the engineering, um, largely done on all of those, which is the first thing.

The other projects the strategic projects that we developed in 2018 for a couple of the other operations down there we have seen les.

Labor costs go up as far as contractors go.

<unk> costs have gone up.

Lumber markets have.

<unk> down and so we have the engineering.

Largely done on all of those which is the first thing until we have those shelf ready, but I would say that we have a target range in internally on our balance sheet.

Ian Fillinger: And so we have those shelves ready, but I would say that, you know, we have a target range internally on our balance sheet, and, uh, and we're slightly above that now. And, um, we've, you know, decided to be disciplined and make sure that, you know, we're not, um, you know, doing projects for the sake of doing projects but focusing more on the quality of the project and the quantity of the project. And I think it's important, too, Matt, to really point out our CapEx. Interfor, generally, over the last handful of years, has outspent on a per unit basis, so a production unit, FBM, more than our core competitors.

We're slightly above that now.

We've decided to be disciplined and make sure that.

We're not.

Doing projects for the sake of doing projects and focusing more on the quality of the project and the quantity of the project.

And I think it's important to Matt to really.

Also point out on our Capex.

Inner for generally over the last handful of years.

I would spend on a per unit basis production unit SPM.

More than our core competitors, so we've been accelerating capital for several years now.

Ian Fillinger: So we've been accelerating capital for several years now. So, you know, I don't see any strategic compromise by throttling this back a bit and being prudent and given the market conditions and also finishing off our largest project. We have, like others, experienced longer startup times and longer to get to pro forma than some of the other regions. However, our internal CapEx team, which you're aware of, we have. This allows us to put more people on these startups rather than rushing off to do another big project. So our expectations are very high for our Thomaston operation this year. Great. Thanks for all the detail there. One last one for me, and this might be for Bart.

<unk>.

I don't see any any strategic compromise.

By throttling this back a bit and being prudent.

And given the market conditions and also finishing off our largest project we have like others.

Syrians longer startups.

And longer to get to pro forma.

And some of the other regions. However.

Our internal Capex team, which.

Which you are aware of we have.

This allows us to put more people on the startups then.

Russian off could do another big projects. So our expectations are very high for our Thomas Finne operation This year.

Great. Thanks for all the detail there.

One last one for me and this might be for Bart I know, you've talked about European volumes being pretty pretty steady into North America.

Bart Bender: I know you talked about European volumes being pretty steady into North America at a fairly manageable level. Do you expect any change there with some of the shipping issues in the Red Sea, in particular just increased costs of shipping European volumes into Asia? Do you expect that to be a factor for North American markets, or not particularly in material? Well, I think it is, it's always, when you consider the options that the Europeans have and where they can ship their wood, you know, I think what's happening in any of their other more traditional markets is relevant, and so yeah, the freight has gone up significantly for their Asian business, and so, you know, when they compare markets and where they want to ship their products to, that'll be a consideration.

Tangible level do you expect any change there with some of the shipping issues in the Red Sea in.

In particular just.

Increased cost of shipping European volumes into Asia.

Do you expect that to be a factor for the North American markets are not particularly material.

Well I think it is.

It's always.

When you when you consider the options that the Europeans had from where they can shift or would I think what's happening in any of their other more traditional markets as relevant.

So we have the freight has gone up significantly for the Asian business and so when they compare markets, where they want to ship their products to the bill that will be a consideration.

Bart Bender: I will say though that, in 2023, I mean, we saw a pretty significant volume of imports come in early in the year. I think this was just kind of clearing out the supply chain issues that they had late in 2022. And so, you know, we're not seeing that so far this year and don't expect to see it this year.

I will say, though that.

2023.

We saw pretty significant volume of the imports come in early in the year. I think this was just kind of clearing out the supply chain issues that they had late in 2022 and so.

We're not seeing that so far this year and don't expect to see it this year and so we believe that once things kind of shake out in the volumes become more steady more typical of what they are today.

Matthew McCuller: And so we believe that, you know, once things kind of shake out and the volumes become more steady, more typical of what they are today, the delta between 2023 and 2024 is going to be more like in the range of, say, the volumes that might have been imported in 2020 and 2021. And so, you know, that's about a 20% decline year over year when you do those comparisons. And that's kind of what we expect going forward. Great. Thanks for the help.

The Delta between 'twenty three 'twenty four is going to be more like in the range of say the volumes. It might've been imported in 2020 in 2021, and so that's about a 20% decline.

Year over year, when you do when you do those comparisons.

It's kind of what we expect going forward.

Great. Thanks for the help that's all from me I'll turn it back.

Matthew McCuller: That's all for me. I'll turn it back. Thanks Matt. On. Your next question is from Hamir Patel from CIBC Capital Markets. Please ask your question. Hi, good morning.

Thanks Pat.

Your next question is from <unk> Patel from CIBC capital markets. Please ask your question.

Okay.

<unk>.

Hamir Patel: Ian, could you speak to you about what impact you think the proposed BC Lands Act changes may have on existing tenures for the industry and also if you see that potentially delaying your coastal tenure sale process? Yeah, for sure. Good question, Hamir. I know it's been in the news, particularly in BC over the last period of time, but in many respects, the proposed changes are aligned with legislation that's already in practice, and sometimes that doesn't really get, as you know, the news headlines.

Ian could you could you speak to what impact you think the proposed BC lands Act changes may have on it.

Existing 10 years for the industry and also if you see that potentially delaying your coastal tenure sale process.

Yes for sure. Good question here I know, it's been in the news, particularly in BC.

Last period of time, but.

In many respects the proposed changes.

You are aligned with legislation that already in practice.

That doesn't really get.

As you know the news headlines.

Ian Fillinger: So, you know, if enacted, we think that there won't be really any impact on the cutting permit approval process, as we've been working under this framework for a number of years. So yeah, I would kind of start off with that, you know, operational plans, and permits have really been operating under this sort of environment for a number of years. I would think that the Minister of Forests has obviously got to take consideration of public interests in mind with First Nations and shared decision making. But the industry has been working with First Nations and building relationships for many years. A lot of effort has gone into building those relationships between government, us, and others that operate in the space, so we don't see any negative drawbacks to that.

So.

If enacted.

Think that there won't be really any impact on cutting permit approval process as we've been.

Working under this framework for a number of years so.

Yes, I would kind of start off with that or.

Operational plans permits.

Yes.

Really.

Been operating under this sort of environment for the.

A number of years.

Yes, I would think that.

The Minister for US is obviously got to take consideration of public interest in mind with first nations and shared decision making.

But.

The industry has been working with first nations and building relationships for many years.

A lot of effort has gone into building those.

Between government.

US others that operate in this space so we.

We don't see any negative draw back on that I know.

Ian Fillinger: I know citizens and foreshores and all the folks that probably haven't had the exposure or the partnerships that we have as an industry might be a bit more sensitive to it, but our foresters have gone through this very diligently and have really provided us with comfort that, you know, it's business as usual for us. Great. Thanks. Thank you. And just the last question I had for Bart.

Citizens.

<unk>.

Folks that probably haven't had the exposure of the partnerships that we have as an industry might be a bit more sensitive to it but.

Our foresters Youll have gone through this.

Very diligently.

Really provided us with comfort that it's business as usual for us.

Okay, great. Thanks, Thanks, Ian and just the last question I had for Bart Bart could you give us a sense as to where.

Hamir Patel: Bart, can you give us a sense as to where you think inventories are for lumber across the channel? Yeah, I would say, you know... I often think of them as balanced, but I think you have to frame that up in the context of what that means, and I would say, based on sort of our historical levels, we see them in sort of the lower end range.

You think.

Inventories are.

For lumber across the channel.

Yes, I would say.

Often think of them as balanced, but I think you have to frame that up in the context of what what that means in.

I would say based on sort of historical levels, we see them in sort of that lower end range.

Bart Bender: And I think what's kind of happened here is that supply has been available, so our customers have gotten pretty comfortable with the lead times that are in place today, and so based on the consumption that they see, they're able to drive down their working capital and inventories because they've always gotten restocked fairly quickly. And so, you know, I think that that's where the comment of being balanced comes in. Where the comment of being on the low end comes is when that's not the case.

And I think what's what's kind of happened here is that.

Supply has been available.

So our customers have gotten pretty comfortable with the lead times that that are in place today and so based on the consumption that they see.

They're able to drive down there their working capital and inventories because they've always gotten restocked fairly quickly and so.

I think that's where the comment of being balanced comes in where it where the comment of being on the low end comes is when when that's not the case and so a little uptick in demand.

Bart Bender: And so a little uptick in demand, perhaps some, you know, some, some supply-side dynamics that might come into the equation. That's when those inventories will become a little bit more critical, I think, in the channel. Great. Thanks, Bart. That's all I had. I'll turn it over.

Perhaps some.

Some some supply side dynamics that might come into the equation.

That's when those inventories will become a little bit more critical I think in the channel.

Yeah.

Okay, great. Thanks, Thanks, Bart that's that's all I had.

I'll turn it over.

Hamir Patel: Thank you. Once again, ladies and gentlemen, please press star 1 should you wish to ask a question. Your next question is from Sean Stewart from TD Securities. Please ask your question. Thanks. Good morning.

Thank you once again, ladies and gentlemen, please press star one should you wish to ask a question.

Our next question is from Sean Stewart from TD Securities. Please ask your question.

Thanks, Good morning.

Sean Steuart: A couple of questions. Ian, I wanted to follow up on the CapEx, budget reduction, and you're positioning it as capital cost inflation, which is understandable and not hitting your return hurdles. Is there any line of sight on this inflation peaking at this point? When I look at some broader indices for steel or other... I guess major component pieces, it would look like that started to crest.

Couple of questions I wanted to follow up on the Capex.

Budget reduction.

You are positioning it as capital cost inflation, which is understandable and not hitting your return hurdles.

Is there any line of sight on this inflation, peaking at this point.

When I look at some broader indices for steel or other I.

I guess major component pieces, it would look like that started to crest.

Ian Fillinger: Are you getting any sense that you're going to see potential relief on those cost inputs for capital projects? Um, yeah, I hope so, Sean. I mean, I think a lot of the pricing that, you know, our suppliers do is they often look at what the last transaction price was on a mill and then kind of value their equipment based on that. So there were some.

Are you getting any sense that you are.

Youre going to see potential relief on those cost inputs for capital projects.

Yeah.

I hope so Sean I mean, I think a lot of the.

Pricing that.

Our suppliers.

Do as they often look at.

Last transaction price was on a on a mill and then kind of value there.

Based on that so there is there were some.

Ian Fillinger: You know, high points on transactions that have happened over the last couple years that, you know, have given equipment suppliers confidence to raise prices in addition to, you know, their material costs going up. So I would think that that's going to get tapered off. The labor costs are not going down. And so when you hire a mechanical or structural steel contractor or civil contractors to come in, those prices are not going down. They're often driven by labor and per hour rates.

Hi points on transactions that have happened over the last couple of years that have given equipment suppliers confidence to raise prices. In addition to their material costs going up.

So I would I would think that thats going to get tapered delay.

The labor costs are not going down and so when you.

Higher mechanical or structural steel contractor or civil contractors come in and those prices are not.

Coming down there are often driven by labor and per hour rates. So so I don't see a lot of that yes.

Ian Fillinger: So I don't see a lot of that. Yeah, I would say though, Sean, like, you know, like I've pointed out, we have, you know, outspent on our capital program against a couple of our core competitors over the last several years. So it's a natural tapering down that you're going to see in Interfor going forward. But, you know, also the balance sheet at Interfor when we set internal targets, and we have one on that. You know, we'll make decisions in addition to, you know, whether it's, you know, completing a project. That is a factor also.

Yes, I would say, though Shaun Lake.

<unk> pointed out we have.

Outspent on our capital program.

Yes.

Again, it's a couple of our core competitors over the last several years. So it's a natural tapering.

That we will see in <unk> going forward.

But also the balance sheet at <unk> Wen.

We set internal targets and we have one on that.

We'll make decisions in addition to.

Whether it's completing a project that is a factor also so I.

Ian Fillinger: So it's, I would say it's a combination of both, and we don't take it lightly. But we definitely want to drive down our net debt to invested capital, and we'll pull the levers to do that. And once we get it back into our target range, you know, we have a lot of flexibility to, you know, deploy capital in more ways than we have today. We want to get there, and part of that is looking at the projects, making sure the paybacks and the startup curves and expectations are realistic, and we always look back at our last project and kind of go, okay, well, let's use that as the foundation for the next one.

I would say, it's a combination of both and we don't take it lightly.

But we definitely want to drive down our net debt to invested capital.

We will pull the levers to do that and once we get it back into our target range.

We have a lot of flexibility to.

Deploy capital in a more.

More ways than we have today, so we want to get there and part of that is looking at the projects, making sure the paybacks and the startup.

Curves and expectations are realistic and we always look back at our last project and kind of go okay, well, let's use that as the start up for the next one in.

Ian Fillinger: So I feel really good about what we're doing, and I think it's, timing-wise, great. And the benefit is we're also taking action on the balance sheet because of this. I'll leave it at that. Yeah, that's a useful context.

So I feel really good about what we're doing and I think it's timing wise great.

And.

The benefit is we're also taking action on the on the balance sheet because of that.

I'll leave it at that.

Yes.

Useful context.

Sean Steuart: Thanks. Second question on the remaining coastal tenure sales. The remaining 1.4 million cubic meters of AAC, any reason that valuation on those potential sales would differ materially from what you were able to secure for the November sale? I appreciate it was a smaller tenure, but any differences in species mix yields for that chunk versus what you're going to be targeting selling over the next couple of years? Good morning, Sean.

Second question on the remaining coastal tenure sales.

The remaining $1 4 million cubic meters a day.

Any reason that valuation on on those potential sales.

Differ.

Materially from what you were able to secure for the November sale I'd. Appreciate it was a smaller.

Tenure, but.

Any differences in.

Species mix yields for that chunk versus what youre going to be targeting selling over the next couple of years.

Hey, good morning, Sean It's Rick speaking.

Rick Posbon: It's Rick speaking. On that, we don't expect any material change in terms of the valuation. There are several transactions we're working on at the moment, and we're comfortable with where those valuations are turning out, and our expectation is that over the next 12 to 24 months, we'll realize the full benefit of those 10-year sales in line with the recent valuations. Thanks for that, Rick. That's all I have. Thanks, guys.

On that we don't expect any material change in terms of the valuation there are several transactions. We're working on at the moment and we're comfortable with where those valuations are turning out and our expectation is over the next 12 months to 24 months, we will realize the full benefit of those tenure sales in.

In line with the recent valuations you've seen.

Okay.

Thanks for that Rick that's all I have thanks, guys.

Thanks, Sean.

Sean Steuart: Thank you. Your next question is from Ben Isaacson from Scotiabank. Please ask your question. Good morning.

Thank you. Your next question is from Ben Isaacson from Scotia Bank. Please ask your question.

Good morning.

Ben Isaacson: Thank you. It's good to be on the call. You mentioned that we're below industry break-even levels. I'm curious as to how much of the American lump loss curve is off-water, how much more capacity cuts do we need to see? And in your experience, do you think that a rationalization response you're seeing is normal, but you've passed those? Hey, Ben, we got about half of that cut out, so I'll just kind of start. Can you hear me?

Good to be on the call.

You mentioned.

Uh huh.

We are below industry breakeven levels Im curious how much of the <unk>.

Cost curve is water.

Paucity cuts to B to C and in your experience.

Rationalization response Youre seeing.

I'll pass.

Okay.

Hey, Ben.

We got about half of that.

Cutting out so I'll just kind of Im sorry can you hear me.

Ian Fillinger: I'll read back what I heard, which was, you know, what kind of rationalization or curtailments are we seeing or expecting? You know, when we go through the data from 2023, we see somewhere in the neighborhood of north of 2 billion board feet that actually were curtailed during 2023, which is not insignificant. I think so far, in the first five or six weeks of 2024, it's somewhere in the neighborhood of 800 million board feet. We applaud those decisions.

I'll re back what I heard which was.

What kind of rationalization or curtailment.

Are we seeing or expecting.

When we go through the data from 2023.

See somewhere in the neighborhood of North of 2 billion board feet that actually was curtailed during 2023, which is not insignificant and I think so far in the first.

Five or six weeks of 2024, it's.

Somewhere in the neighborhood of 800 million board feet.

We applaud those decisions.

We think that more will come out sooner than later.

Ian Fillinger: We think that more will come out sooner than later, and we expect that we'll be looking at that closely also over the next month or so. And if prices continue to show no appreciation, then... I would expect capacity to be curtailed throughout the industry. And at this point, we don't have anything material to discuss on that. You know, if we get to that point, then we'll definitely let our folks know and uh... on the street, but we're not at that yet. We don't have anything today, but I would caution that saying that I think there's more to come. That's helpful. That's helpful. I'm sorry if you couldn't hear me before. You had previously talked about lumber capacity, like your growth plan of about 7 BBF by 2027. Is that timing still on the table?

And we.

We expect it will.

We will be looking at that closely also over the next.

<unk> or so.

And if prices continue to show lower depreciation and I would expect capacity be curtailed.

Throughout the industry.

And at this point.

We don't have anything material to to discuss on that but.

If we get to that point.

Definitely.

Our folks know and the street, but we're not at that.

We don't have anything today, but I would caution that seeing that I think there's more to come.

Super helpful.

That's helpful and sorry, if you Couldnt hear me before.

You had previously talked about.

Lumber capacity like your growth plan of about 70 bps by 2027 is that timing still on the table and if so how does the scaling back on capex impact the cadence of that capacity ramp in may.

Ian Fillinger: And if so, how does the scaling back on CAPEX impact the cadence of that capacity ramp? And maybe as part of that, with the move to 90 million on CAPEX, how much of that is growth versus sustaining? Yeah, so our seven, you know, 7 billion by 2027 is really an internal target that, you know, we were shooting for. I would say that, you know, those targets move a little bit here and there. But, you know, we are a growth company; we've been the most aggressive on growth over the last few years in the lumber space. We tend to see ourselves as being able to pick up assets that are mid-quartile and spending time on them to make them top quartile. That strategy hasn't changed.

And maybe as part of that.

With the move to 90 billion on Capex, how much of that is growth versus sustaining.

Yes, so our seven.

$7 billion by 2027 is really.

Internal target.

Sure.

Shooting for I would say that.

Those targets move a little bit here and there, but we are a growth company and we've been the most aggressive on growth over the last few years in the lumber space.

We tend to see ourselves as being able to pick up assets.

That or.

Mid quartile and spending time on them to make them.

Top quartile so.

That strategy Hasnt changed I would say that.

Ian Fillinger: I would say that consolidation and the number of potential deals that are on the table today versus where they were two years ago are slim to none. And so I think we just have to be responsive to what's out there, making sure that we're, you know, disciplined in our growth, but we're not holding ourselves back.

Consolidation in the number of potential deals that are on the table today versus where they were two years ago is slim to none and so I think we just have to be responsive to what's out there making sure that we are.

Discipline in.

In our growth, but we're we're not holding ourselves there is nothing in our performance reviews.

Ian Fillinger: There's nothing in our performance reviews that say we're going to get to 7 billion more feet. It's more, can we pick up an asset, own it for a period of time, and then get the return and the margin out of it.

We're going to get to 7 billion board feet, it or can we pick up an asset.

On it for a period of time, and then get the return and the margin out of it so I would taper down the 7 billion for sure and just.

Ian Fillinger: So I would taper down the $7 billion for sure and just probably look at it as, you know, will be opportunistic. But, you know, there's nothing on the table today. And as far as our CapEx growth goes, our major project really is the Thomason, which is... I forget how much the capacity is, but it's essentially doubling that one mil.

Probably look at it is we will be opportunistic, but there's nothing on the table.

Okay.

And as far as our Capex growth goes.

Our major project really is the Thomas and witches.

I forget how many how much the capacity is but it's essentially doubling doubling that one mill, but Rick did you have anything.

Ian Fillinger: But Rick, did you have anything? Yeah. Hi, Ben. It's Rick Posbon. Just in terms of the $90 million, it breaks down to about $50 million for sustaining CapEx and $40 million for growth CapEx.

That is correct pause one just in terms of the $90 million that breaks down to about $50 million for sustaining capex and $40 million for growth Capex and as Ian mentioned, the $49 and growth Capex is primarily weighted to our thomason project to get that across the finish line.

Rick Posbon: And as Ian mentioned, the $40 million of growth CapEx is primarily weighted to our Thomaston project to get that across the finish line. That's great. Thanks so much, guys. Thanks. Thank you. There are no further questions at this time. I will now hand the call back to Mr. Fillinger for the closing remarks. OK, just to wrap up, thanks, everybody, for your interest in our company. And feel free to reach out to myself, Rick, or Bart at any time. Operator, this concludes our call. Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining me. You may now disconnect.

That's great. Thanks, so much guys.

Okay. Thanks Pam.

Thank you.

No further questions at this time I will now hand, the call back to Mr. Cohen for any closing remarks.

Okay, just to wrap up thanks, everybody for your interest in our company and feel free to reach out to myself, Rick or Bart at any time and operator. This concludes our call.

Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.